Earnings Call: Q2 2021

Jul 28, 2021

Good morning, and welcome to the Sonic Automotive Second Quarter 2021 Earnings Conference Call. This conference call is being recorded today, Thursday, July 29, 2021. Presentation materials, which management will be reviewing on the conference call, can be accessed recorded at the company's website at ir. Sonicautomotive.com. At this time, I would like to refer to the Safe Harbor statement under the Private Securities and Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the company's products or market or otherwise make statements about the future. Such statements are forward looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. Recorded. These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission. In addition, recorded. Management may discuss certain non GAAP financial measures as defined by the Securities and Exchange Commission. Please refer to the non GAAP reconciliation tabled in the company's current report on Form 8 ks filed with the Securities and Exchange Commission earlier today. Recorded. I would now like to introduce Mr. David Smith, Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference. Recorded. Thank you, and good morning, everyone, and welcome to Sonic Automotive's Q2 2021 earnings call. Recorded. As she said, I'm David Smith, the company's CEO. Joining me on the call today is our President, Mr. Jeff Dyke our CFO, Mr. Heath Byrd recorded. Our Executive Vice President of Operations, Mr. Tim Keane our Chief Digital Retail Officer, Mr. Steve Whitman recorded and our Vice President of Investor Relations, Mr. Dane Wyland. We're excited to publicly announce today record breaking recorded and financial performance for our company during the Q2 of 2021. This performance would not have been possible without the tremendous effort and execution recorded by our valued Sonic and EchoPark teammates. Congratulations and thank you all. We'd also like to thank our customers, manufacturers and vendor partners recorded for helping us achieve another record quarter. During the Q2 of 2021, Sonae continued to deliver exceptional performance in our franchise dealership recorded. We also posted a 4th consecutive quarter of record revenue and retail unit sales volume for our EchoPark business. Recorded. On a consolidated basis, we reported all time record quarterly revenues of $3,400,000,000 recorded up 59% year over year. When compared to the Q2 of 2019 to exclude the effects of the onset of the pandemic, recorded. Total revenues were up 28%. We generated all time record quarterly income from continuing operations before taxes recorded for the Q2 of 2019. We expect to be in the range of $151,000,000 up 303% on a year over year basis and up 3 10% recorded when compared to the Q2 of 2019. We also reported all time record quarterly earnings from continuing operations of $114,000,000 recorded for $2.63 per diluted share compared to Q2 2020 earnings from continuing operations recorded of $31,000,000 or $0.71 per diluted share and adjusted earnings from continuing operations of 28,000,000 recorded in the quarter or $0.64 per diluted share. These results reflect the strong consumer demand environment we've seen across all of our business lines recorded since the latter part of 2020. We also showcase Sonic's continued ability to maximize operating efficiency at our franchise dealerships recorded as well as the continued successful expansion of EchoPark's nationwide network. We are confident that our strong operating performance can be sustained recorded throughout the balance of 2021 and well into 2022 and we are well positioned to grow total annual revenues to $25,000,000,000 recorded by 2025 while continuing to significantly increase our profitability. Recorded. In our core franchise dealership segment, 2nd quarter revenues were $2,800,000,000 a 53% increase from last year, recorded, which reflects rebound in consumer demand since the height of the pandemic in 2020. Gross profit for the 2nd quarter was reached $475,000,000 up 69% from the prior year. Total Franchise pretax income was $165,000,000 an increase of 131,000,000 recorded for 3.75% compared to last year. Same store franchise dealership revenues rose ranked 5% on a year over year basis, while gross profit was up 74%. Recorded. On a 2 year comparison, same store franchise dealership revenues increased 25%, while gross profit grew 40% compared to the Q2 of 2019. Franchise dealership total variable gross per unit was nearly $5,100 per unit, recorded. This conference call is being recorded up 43% year over year and up 58% from the Q2 2019, benefiting from strong vehicle margins and recorded. Our franchise dealership performance has been enhanced by execution against our plan, including discipline around SG and A spend, focus on our parts and service business recorded and our continued ability to efficiently manage our inventory. Looking forward, we remain committed to optimizing our recognized by our franchise dealership business, both through organic growth initiatives and through strategic acquisitions. Recorded. To that end, earlier this week, we completed acquisition of Subaru and Volkswagen franchises in Grand Junction, Colorado. Recorded. These acquisitions enhance our brand portfolio and complement our overall growth strategy and we expect to announce additional recognized in the near term as we drive toward $25,000,000,000 in total revenues by 2025. Turning now to EchoPark, the combination of our below market pricing, efficient inventory procurement, logistics and reconditioning processes recorded. And digital enabled sales channel has allowed us to offer tremendous value to consumers and our top line growth reflects this growing brand recognition. Up 89% on a year over year basis and a 104% increase recorded compared to the Q2 of 2019. During the Q2, EchoPark achieved all time record quarterly retail sales volume of nearly recorded. 21,300 units, up 61% year over year. On a 2 year comparison, recorded. EchoPark retail unit volume increased 69% compared to the Q2 of 2019. Recorded. We are already halfway to our EchoPark network expansion goal of opening 25 new locations in 2021. Based on our success to date and plans for future markets, we expect EchoPark to achieve 25% population coverage by the end of 2021 recorded and 90% population coverage by 2025. Further driving our expansion opportunity, we have made excellent progress recorded with our proprietary digital retail platform and are on track for a Q4 2021 launch at EchoPark. Recorded. In the meantime, we continue to drive market share gains in our existing EchoPark markets and we anticipate our market penetration And brand recognition will continue to grow rapidly over the next decade as we expand our nationwide distribution network. Looking now at market share in more detail, EchoPark has shown a consistent trajectory from launch indicating that our expansion is performing to plan. Recorded. Within EchoPark's 1 to 4 year old vehicle category, markets with EchoPark locations open for less than 2 years average of 5% share, while markets with EchoPark locations open for 2 to 3 years average an 8% share. And markets with EchoPark locations open for more than 5 years average a 14% share. In addition, our below market pricing drives sales opportunities on both ends of the 1 to 4 year old spectrum, where we compare favorably on price to both recorded. And 5 to 6 year old vehicles, allowing us to expand our addressable market. Recorded. In the longer term, we expect to continue to drive market share growth within EchoPark to an achievable target of 10% of that core market of 1 to 4 year old vehicles network wide, which combined with the adjacent deep wage segments positions the business for a potential volume of 2,000,000 units recorded annually at maturity. With our progress to date and the continuing development of our omni channel retailing platform, We remain confident we can reach our interim goal of $575,000,000 units $14,000,000,000 in EchoPark Revenues recorded by 2025. In addition to our top line results and continued expansion of EchoPark, recorded. Our team remains committed to improving operating margins and managing expenses throughout the organization. Recorded. In the Q2 of 2021, total SG and A expenses as a percentage of gross profit were 62.8%, recorded in all time quarterly record and a 12 10 basis point decrease from 74.9 recorded in the Q2 of 2020. Franchise segment SG and A expenses as a percentage of gross profit recorded. We're just 58.1 percent in the 2nd quarter, a 1660 recorded. Basis point decrease from 74.7 percent in the Q2 of 2020. Recorded. On a 2 year comparison, this represents a 1900 basis point improvement from reached 77.1 percent in the Q2 of 2019. With this expense leverage, recorded. We realized 2nd quarter adjusted EBITDA margin of 5.7%, up 2 20 basis points recorded year over year and a 280 basis point improvement compared to the Q2 of 2019. These results reflected permanent expense reductions we have previously communicated. While current operating results reflect a higher gross recorded. Due to constraints on new vehicle inventory, we do not expect new vehicle GPUs to fully regress to pre COVID levels recorded. Assuming normalized new vehicle GPU of $2,500 recorded. And used vehicle GP of $1300 without assuming additional unit sales volume or further parts and service growth, Our pro form a franchise dealerships SG and A is expected to be in the 62% to 63% range, recorded, representing a 1,000 basis point improvement from pre COVID levels as a result recorded in the quarter. In addition to operating expense leverage, recorded. We ended the 2nd quarter with over $600,000,000 in available liquidity, recorded, including approximately $315,000,000 in cash and deposit balances on hand. Recorded during the early part of the quarter, as we mentioned on our last earnings call, the company closed a new 4 year recorded in the Q1 of 2019. This conference call is being recorded in the 1,800,000,000 credit facility, which allowed us to extend our debt maturities, improved our borrowing costs recorded. We believe Sonic is well positioned to continue executing on our EchoPark growth plans, while also strategically investing in the future recorded. Our franchise leadership business and continuing to return capital to shareholders through our dividend and share repurchase programs. Recorded. I'm pleased to report that our Board of Directors approved a quarterly cash dividend of $0.12 per share, recorded. In closing, our all time record quarterly results demonstrate the company's continued focus on execution strong franchise dealership performance, the continued expansion of EchoPark's nationwide footprint and our success in maximizing operating efficiency recorded. We believe that this consumer focused approach will be We believe that this consumer focused approach will continue to deliver strong results for our shareholders recorded and maintained Sonic and EchoPark's position as leaders in evolving automotive retail environments. Now before we turn the call over recorded. I'd like to comment on today's announcement that the company has initiated a review process to evaluate recorded for our EchoPark business. As detailed in our press release, working together with our advisors and our Board, recorded. We will explore a range of value creating alternatives for the business. No timetable has been established for the completion of the review. Recorded. As the review progresses, we will remain committed to executing our accelerated expansion plan for EchoPark, bringing this unique and competitive offering to new markets to deliver value for our guests, while also supporting the teammates that are central to cultivating the EchoPark experience. Recorded. We are focused on continuing to build upon the positive momentum in the business and remain confident in the long term growth opportunity ahead. Recorded. As the review is ongoing, we will not speculate on any particular outcome or make any further comments related to the process. Recorded. This concludes our opening remarks. We look forward to answering any questions you may have. Thank you very much. Recorded. Recorded. Our first question comes from the line of Rick Nelson with Stephens. Please go ahead. Thanks. Good morning. Great quarter. I want to follow-up on this strategic alternative. I'm Curious what is prompting that review at this time? We're not going to comment any further than the statement that both is in the press release as well as recorded in the opening statements from David. And once the evaluation is complete and there may be additional comments, but at this point, I just wanted to make recorded. So on the franchise side, we saw pretty meaningful expansion Can you help reconcile those differences? Yes, Rick. So why don't you take it why don't we start this is Kind of a long winded answer, but why don't we start, and let me refer you to Slide 22 of the investor presentation that we released this morning. I think that will really help us kind of answer this question. I'll give you a hard answer a second to get there. Recorded. So as you can see on the slide, when you look at weeks 1 through 9, we had really normal market conditions and normal EchoPark margins. Beginning in week 10, wholesale prices rose above average market retail prices. And in my career, which 25 years doing this. The market's never seen a wholesale price inversion of this week or magnitude at all. In early April, we then decided Make a strategic decision to drive volume and market share, but also mitigate losses by adjusting our pricing strategy up. As we move into the Q3, market conditions are now beginning to return to normal and we've returned to our normal pricing strategy that we were running in the Q1. But recorded. However, we do have a 40 plus current day supply of inventory. That's driven by new store openings. Traditionally, we've grown 30 day supply, 20 recorded. And so we expect margin pressure to continue through August. But as we approach the end of the Q3, we expect EchoPark margins to begin to normalize. 4th quarter margins are going to look a lot like the Q1. And as a result of the actions that we've taken. We do remain on track to sell the 100,000 to 105,000 cars that we told The Street that we would sell at the beginning of the year. When you look at the franchise side, trade ins make up a big percentage of our volume, about 60%. And so we're obviously trading for cars a lot cheaper than we're buying cars at the wholesale line. About 88% of our cars come from the auctions recorded at the EchoPark level where very few, a much smaller percentage of our cars come at the franchise dealerships and that speaks for the industry as well. Everybody's got higher margins, but the exposure for EchoPark is that we buy a lot of wholesale cars at auctions and so and we keep a short day supply. So So we're going to run into margin events when you have an event like this. The good news is, is these events have happened one time recorded in my 25 years and probably have happened one time in anybody that's on this call as well. So it's not a concern for us as we move forward. We believe things will return back to normal and getting closer to normal as we go into the month of September, certainly into the Q4 and as we move on into 2022. Thanks for that, Jeff. So curious also recorded. You're expecting losses in Q3 and Q4 that we shift to profitability and each sort of Yes. Here's how you would look at it. I think that the losses that you see and saw in the Q2, they're going to kind of be relative in the month of July. We'll get a little better, but probably still show a loss in August. September should then turn positive and then the Q4 will be back to the run rates that you saw in the Q1. So The overhang that we have and we wouldn't obviously have an overhang if we weren't opening so many stores, but we're buying a lot of inventory right now. And we're just not going to adjust our strategy Because of an event that happens once in a lifetime, it's just not it's not something we're going to do. It slows the entire business down. We're going to continue to grow our share, as David said in his opening comments. We have a 5 year old store. Our most mature store and our most mature markets got 18% reached in the Denver market and we're averaging really 14% share in anything over 5 years. So we're not going to slow that down for a one time event recorded and we think we've made the right decisions there. So a little bumpy road for July, August, things get a lot better as September gets here and then back to normal in the Q4. Recorded. Thanks for that. Also, I noticed you have an acquisition And your appetite now to acquire on the franchise side? I mean, we're bullish on the Franchise out of the business and the EchoPark side of the business. There are a lot of deals out there right now. And so we're strategically buying deals that fit our footprint or markets that we're going into. New markets Like we announced at Grand Junction, although we're in the state of Colorado. But there are a lot of opportunities out there right now. So and as David said in his opening statement, You're going to see more purchases from us on the franchise side as we move through the rest of this calendar year. Recorded. Great. Thanks and good luck as we push forward. Thank you so much. Recorded. Your next question comes from the line of rahat Gupta with JPMorgan. Recorded. Great. Thanks for taking the question. I know you don't want to give too much color on the strategic review, but recorded. In the event that there is a separation of the EchoPark business that might happen as one of the recorded. Is there any way you can frame for us or quantify the dis synergies recorded. That would be there in that event. Any brief color on that would be helpful. And I have a follow-up. Recorded. No, we appreciate the question, but we really can't comment further. Recorded. Okay. Anything qualitative to keep in mind in terms of like shared resources or recorded. Rajiv, this is Heath. Again, we're not going to comment on any of your details. I can just Just like every decision that we make in this company, our focus is on increasing shareholder value and releasing as much value in this company as we can. And so that's a driver of every decision we make. But other than that, we just won't get into details of recorded. On the 2,000,000 units at maturity, what kind of like EBITDA margin profile recorded. The 2025 targets imply like somewhere in the low single digits, but we're still ramping up stores at that point. So Any color on what kind of EBITDA margins or profitability of the business can be at maturity? Yes, you're going to see you're going to continue to see expansion of that, in particular based on what we projected in 2025. That's based on an immature store set. So as we run those out towards maturity and you get a more mature store base, you'll see continued expansion beyond what that is there. We have not quantified what that opportunity or upside is. But I think the basis for EchoPark is that we are able to scale and leverage those expenses dramatically better and more efficiently than we are on the franchise side. And so we should see meaningful upside to EBITDA margin as you get north of the 575,000 units And continue to mature the store base. And to Daniel's point, we've always talked about how The expenses at EchoPark are more fixed. And so obviously, that's going to drive higher EBITDA margin as we scale. Recorded. Got it. Any color on like what the matured stores, what kind of EBITDA margin there at? Obviously, Taking into account the one time hit this quarter on GPU, but any reference to that? So, I guess the best way to look at it is SG and A is going to be in the mid-50s to 60% range, Somewhere in that ballpark for a mature store. Got it. Okay. And if you go back to what our 2 most recorded. Sure, Mark, as Denver and Dallas did in 2019 pre COVID, both each of those markets did $12,000,000 in pretax. And so if you think about them running at a I think that year is 1300, 1400 units a month, on average. So if you look at it from that perspective, EBITDA is going to be somewhere north of that $12,000,000 into that revenue base. And during that timeframe, the share in those markets was lower. Denver is running last month. We for the month of June, we ran 18% market share there. So it's a much more mature market now and we don't know where that share can go. We're calling out 10%, which is driving the $2,000,000 but our stores are at 5 years at 14%. So There's certainly upside to that number, and I think that's a critical thing to think about as we move forward. Got it. Just one last one on the SG and A side, you gave us some color on The franchise business in the context of what GPUs would look like. Just looking at the 2nd quarter number, the 58% for franchise SG and A to gross, it looks like the leverage or the drop true to the bottom line from the gross profit increase. This seems to be much higher for you versus what you've reached. Almost like 75% to 80% drop through of that gross profit benefit. Recorded. Is there something different or are there any changes that you had made over the last year when you were leading off We need to get out some staff that it hasn't been any change in terms of the fixed sources variable comp model or anything of that sort That would lead to this kind of a drop through. Just curious if you can share any thoughts there. That would be all. Thanks. Recorded. Yes, this is Heath. A couple of things, I missed a little bit of it, but I just want to and David did on it very well in the opening comments. Recorded. First of all, on a high level, I think we had actually guidance in February of around 73% for 2021, for the year we're running at 66%, 67%. And For this year, we absolutely expect that to be our SG and A percentage of gross at that level, not the higher 73%. If you look forward, David articulated this and try to normalize what we expect to see in 2022 where you recognized what we expect to see in 2022, where we still believe the GPU is going to be elevated on new. You normalize the used. Recorded. We are looking at a 62% and that includes EchoPark and the franchise business. Recorded. And so as the EchoPark matures, we can actually improve that even better than the 62% range. Recorded. But a couple of things that are driving the throughput. We've got if you look at our productivity on our sales associates, for example, Yes, we used to sell 12 units per month for associates before these cuts would be put in place recorded and these efficiencies now running 2018, 2019. And so that's a fundamental change that you can see even at these new levels we're maintaining. Recorded. And so that's a big part of it. That is changes, structural changes that have been made in our organization. The other one is the centralization of Advertising, a huge component to our SG and A that is a structural change that's allowing that throughput to happen. We're spending a lot less on advertising and it's even more effective. And so those are 2 of the biggest that are The structural changes are driving that throughput. It's not just a gross driven event. It's a gross and expense driven event and we made a big deal out of that During COVID saying we really did take a lot of expense out of this business. I think we quoted $84,000,000 annually that's come out. It's running higher than that. And it's permanent, as David said in his opening statement. And so when you're looking at your models and forecasting for next year, you really got to take that into consideration recorded in terms of how you look at the business. And then the great news there is and I don't know if you mentioned this or not Heath, but Our California market is really underperforming in a big way compared to the rest of the markets. The market has just not come back as fast reduced due to COVID. So if you look at our new car volume in California, it underperformed the rest of our stores by 1,000 basis points, used car volume down by 1400 basis reached. Total revenue is down by 1300 basis points and gross profit down by 1,000. As California opens back up, It's just going to be fantastic for us. We've got a big chunk of our stores and our business out there. And so that's going to further enhance the gross recorded. But it's also going to continue to lever the SG and A percentage gain. So it really is a coming from both sides. And the great news is, is we can have the new car margins return. I don't think they're going to return to pre COVID levels. Again, I think the manufacturers You're doing a smart job by keeping inventories tight and they'll continue to do that even as we move forward. So if you do model a $2,500 PVR, You're still well ahead of where the work pre COVID. You get to have the gross growth and you get the big expense reductions that are permanent again in place and that's just going to keep the SG and A coming down. Then you add on top of that the performance of EchoPark getting back out of this Crazy inversion time that we went through and the pictures just looks really, really good for us. And that's why this is David and that's why I noted Assuming no additional unit sales volume in that or further parts and service growth, Yes, we're being conservative in these projections. Yes, I think that's when I look at some of the models I've seen from some of analysts on recorded. From our perspective, I think what is being missed is the power of that SG and A reduction staying in place. I also think that some people are assuming that we go back to pre COVID GPUs, which from our perspective, recorded. As Jeff mentioned, we think that new will be elevated continuing and at least from our company specifically, recorded. The models are not giving EchoPark any credit. And as we've mentioned many times, 2022 is the The tipping point of EchoPark. That's when we are going to be opening less stores than we have opened. And so I I think when we look at some models that really don't job as ours, those are the things I think they're missing. Go ahead. Yes. I think I missed like the last few seconds, but I need to cut off. But I'll leave the transcripts. Thanks for the color. Andy, you guys. Say it again about the store openings versus Yes. I was just saying that as we look at Some of the models from some of our buy and sell side analysts and when it doesn't really jive with our perspective, the things that I think are missing are recorded. The understanding of the permanent reductions that will continue regardless of any increase in volume, recorded. Number 2, the assumption that new GPU goes back that the manufacturers go back to the 60 day supply, 65 day supply And the new GPU goes back to 2019. From our conversations, as Jeff mentioned, that's not going to happen. Those will be elevated continued recorded. The impact of California, at least specifically for us, and what is going to happen in the second half of twenty twenty one and into twenty twenty two. Recorded. And again, EchoPark. EchoPark is that 2022 is our inflection point or tipping point recorded. We are opening less stores than we have mature. And as we stated before, we believe that is when The profitability, even though we have it today, it starts growing exponentially because you've got so many mature stores in place. Recorded. Got it. Great. Thanks for all the color and good luck. You bet. Thank you. Your next question comes from the line of John Murphy with Bank of America. Recorded. Good morning, guys. You answered a lot of my questions, but I'll ask just 1 or 2 more. You mentioned 2,000,000 units is sort of the target for EchoPark at maturity. And I think Jeff you were saying there are some markets and that's based on 10% market share on your Your target vehicles, but there are some markets here, 14%, 15%. I mean, could this be the kind of thing where this is not $2,000,000 it's $3,000,000 And If you decide to expand in the iceberg or maybe slightly older vehicles or expanding the offering that you might Something significantly larger than that. I mean, how are you paying this $2,000,000 other than just 10%? What's the opportunity beyond maybe that? Yes. I mean, if we take the 5 year average right now the 5 year old store average right now, it's 14%. So the number is bigger than $2,000,000 And yes, it could be reached $3,000,000 $4,000,000 at the end of the day, we're always looking to take the inventory process that we have at EchoPark and the pricing model and to expand that. I would think of it differently. I don't think we expand into 5, 6, 7, 8 year old cars because it brings a lot of complexity to the model that really doesn't fit our model, Adds cost and things of that nature that just doesn't fit the model. But what you might think about is instead of the traditional EchoPark Less this crazy time, traditional EchoPark average retail price being $20,000 to $21,000 you might look at something like, okay, can they expand that to a $35,000 to $40,000 car. And so because that's not an average retail selling price, we're coming anywhere near. And we're always looking at how can we take this great model that we have, the efficiency that we have with the model, which is really exceptional, and one of a kind, I think, in our industry and expand that to grow EchoPark to further levels. So yes, the $2,000,000 is a good safe number for us because we know we're going to be above 10% In terms of market share and we understand what our defined market is. It's a smaller swim lane. It's not the traditional 40,000,000 to 43,000,000 cars being sold every year. Recorded. It's a smaller lane, but we can own a much larger percentage of that lane than what some of our competitors are talking about Of the overall market. And so, I think you're thinking right and it's absolutely the way that we're thinking. And also, The only thing to think about because of our pricing strategy, part of that $2,000,000 which could be a lot higher numbers, we're pulling That 56 year old buyer into the 1 to 4 year old because we are priced so low that now they can afford a 1 to 4 rather than a 5 to 6. Yes. That adds to our TAM. We're also pulling from new car buyers because I've got a 1 to 4 year old car with a condition report of 4.5. Recorded. It's just as good as a new car. And so I'm pulling from that $13,000,000 as well. So we feel like we're going to have some migration from those other populations into the 1 to 4 because of the way we brought And we do today. That's part of our volume today and we expect that to continue to expand with our pricing model as we move forward. That's happening and that's part of the big share, like I quoted for Denver that we've got an 18% market share there in the 1 to 4 category, but it includes some 5 year old vehicle buyers because the price is so low and it includes some new car buyers because we're 40% price below new car traditional number. So, all in, a great opportunity for us. And again, I think you're thinking right. And then just a second question. I'm not sure you can you're going to be willing to answer this, but I mean you said 88% of EchoPark units are sourced from recorded. I mean, just trying to understand that inventory, I mean, sourcing 2,000,000 units get you start getting into just simply big numbers, big chunks of the market. So, I mean, You need to do the sourcing strategy, you're going to say the same over time at EchoPark? Yes. So it's really not a strategy. At the end of the day, we buy as Cars off the street as we want, but just think about it, it's not a lot of customers trading in a 1 or 2 year old car and they're still upside down, have negative equity, whatever. It's just not as big a swimming pool As you might see for our franchise stores or some of our competitors where we're selling 0 to 10 year old cars and the average car on the road is 8, 9 years old and we trade for those cars all the time, it drives The margin that you see on the franchise side. So, yes, I think you can expand. If you look when we first started, that number was 6%, 7%, 8%. We've got it up to 12%. Recorded. I think we have some opportunities here, but I don't think it's going to be as big a percentage overall of our sellable inventory As you might see it at some of our competitors set or even our own franchise stores. And we really don't we don't take cars from the franchise stores and move to EchoPark. We do the other way. Of course, it don't fit the EchoPark model we send to our franchise stores and they benefit greatly from that. But it's certainly every day a topic of conversation for us is How do we increase the 12% because the margins are significantly better on a street purchase than they are buying a car at the auction. And one other point, We're not I mean, I hear people all the time talking about not being able to buy inventory. We don't have we've never had a problem buying inventory. We haven't had a problem When everybody says inventory is tight right now, we don't have a problem buying inventory, you got to pay for it and that's going to adjust the margins. But it's what we're not going to let that do is slow us down. The business is strong enough now that we're going to continue to power through. And when you have events like we had over the summer here, recorded. It's not a big enough event to worry us. We're going to continue to power through, drive our market share because we come out the other recorded. We're going to be a lot stronger for it. So we don't have any problems getting inventory. I want to make sure that I get that point across. Recorded. And this is David. And something to think about it and related to that is, as We grow our brand, our EchoPark brand in markets. You can see that our market share increases, but so do the number recorded. The quality trade ins that we get that actually fit the EchoPark model that we then go and resell. So we definitely see that those numbers growing. Recorded. Okay. And then just lastly, I mean, there's a core part of the business, which is still very, very good business outside EchoPark. I mean, do you have any Designs about where that lands. I mean, Ray, you've given us an idea of 2,000,000 units, but like obviously there's some upside there on EchoPark. Where do you think that the core business, the core franchise business goes over time? How do you think about where that could Pop out or where you go when you're making acquisitions? Well, there's a number of ways to answer that. I know Jeff will have some comments on that. But The franchise business is still extremely fragmented in this country and so there's still tremendous opportunity recorded for growth in that area, which we alluded to that in our opening comments. Also, John, we've just never been in a position to grow, recorded. We just haven't had the liquidity. We've been shoring up our business. This team has been together since the end of 'eighteen. And so we position the company now from a liquidity perspective, we can kind of do what we need to do to grow in the franchise business and continue to grow EchoPark. And so now you're going to see us dive in there. We said it in the opening, we've got more franchises coming. We want to grow the business. It's a great business. Like you said, It's highly profitable. We really have our house in order when it comes to our liquidity, and Heath can comment on that here in just a second. But Also from an operational perspective, the turnover from our general manager turnover is 5% or less. The company has really strengthened performance. Our playbook processes are really have matured. And so it's time to grow the business and we're in a position to do that now. And there's been some deals that we just want to emphasize to that, we absolutely look at the ROI of all of our investments. And so there have been some deals that we've passed on that just did not reached. And so there have been some deals that we've passed on that just did not represent a great investment versus the investment in EchoPark. But we think recorded. As we move forward, we're seeing more and more opportunities to get for great acquisitions that are accretive And will add a lot of value for our shareholders. Yes. And if you look at it from a balance sheet perspective, our leverage ratio is extremely low. Our credit profile is improving from the agencies on a daily basis. So we've got readily available access to the capital markets I mean, would it be actually just a follow-up, I mean, you look at AutoNation, it's about 2% of the market. You got Lithia making acquisitions pretty aggressively, talking about getting about 5% of the market. I mean, would you ever I mean, I can't put you on the spot right now because I'm sure, well, you might have some ideas about this, so I'd certainly ask, of where you could be as a percentage of The new market, right? If you're sitting here saying, hey, it can be 10% of the addressable market I'm going after in EchoPark. I mean, could you say 2%, 3%, 4% or 5% in the new vehicle market. Is that something you'd be willing to put out at some point as a target? Or is this going to be just more opportunistic and you're going Roll up as you see fit over time. Well, look, we just dove back in the pool, right? And so That's a number I'm sure that will come with, because there's just a ton of buying opportunities out there right now and you see open And you'll see us do the same in particular between now and the end of the year. And so, yes, I think at some point in time we can define that. Recorded. We're really kind of starting to hit our stride from an M and A perspective. And so give us a few quarters and we'll begin talking a little bit more about that recorded. Your next question comes from the line of Mark Jordan with Jefferies. Recorded. Good morning. Thank you for taking my questions. Good morning. I guess following up on the MA question, can you kind of talk about what multiples you're seeing now and How to compare historical trends? They're different all over. It really depends on the brand and the markets that you're in, but I mean if you're going to go out and buy a Porsche store, you're going to pay north of the 10 multiple. But if you're buying Some of the domestic or imports, it's 5, 5.5, 6, somewhere in that ballpark we're seeing. And it really does depend on the market, recorded. There's just so many different issues with narrowing it down on Kind of a nationwide basis as the numbers are different all over the place. And I think you would hear that from our competitive side as well. Okay, great. Recorded. And I guess following up on the EchoPark GPU question from earlier. It looks like in the quarter you took some pricing up, I think above market recorded to kind of offset some of those wholesale headwinds. So when we get back to more of a normal sourcing environment, is this maybe kind of an opportunity there to rethink recorded. The pricing model or maybe just be a little bit above where you have been historically for EchoPark? It's an interesting conversation because what it recorded. Showed in this timeframe is the strength of the brand, because we got as high as 108%, 9%, 10% of the market during the timeframe, trying to Balance the loss and maintain our numbers in terms of share. So down the road as the brand strengthens And the guest gets to experience more than just price, but they get to experience just the great experience that you get coming into the store. There is definitely going to be opportunity for margin expansion. We have not defined that yet, But you will continue to see us stay very aggressive versus the market. That's our bread and butter. And that Could we go from 2,500 to 3,000 below market down to 2,000 below market and still get the same kind of market share that we're seeing today? We will definitely play with those numbers as the brand expands across the country and becomes a nationwide made brand. And I I might have Steve Wootman just comment quickly on our digital retailing platform. Yes, sure. So we've taken a 2 pronged approach to e commerce here at recorded. In parallel, we are improving echopark.com and building our proprietary digital retailing tool. Our proprietary digital retailing tool is on track to launch in Q4 of this year. We have a big team of over 50 people of designers, developers and product owners received. We're working on that right now. And that's really set to deliver a true end to end experience for the consumer without having a lot of human intervention like a lot of our Other tools out there have. In parallel, we're improving, echopark.com. So echopark.com visits are up 156% versus a year ago. Leads are up 111% versus a year ago and our cars sold from our websites are up 74% versus a year ago. So we're improving echopark.com every single day. And we've actually for the first time in May June July, we actually generated more leads from echopark.com than we did from our 3rd party. Just shows the strength of the website and also shows the strength of our brand. Great. Thanks, Steve. We recorded. We have no further questions at this time. I'll turn the conference back over to management for any closing remarks. Thank you everyone for joining us and recorded. Have a great rest of your week. Thank you. Ladies and gentlemen, that will conclude today's call. Thank you all for joining. You may now disconnect.